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Shooting Low or High: Do Countries Benefit from Entering Unrelated Activities?

Author

Listed:
  • Flávio L. Pinheiro
  • Aamena Alshamsi
  • Dominik Hartmann
  • Ron Boschma
  • César Hidalgo

Abstract

It is well known that countries tend to diversify their exports by entering products that are related to their current exports. Yet this average behavior is not representative of every diversification path. In this paper, we introduce a method to identify periods when countries enter relatively more unrelated products. We analyze the economic diversification paths of 93 countries between 1970 and 2010 and find that countries enter unrelated products in only about 7.2% of all observations. Then, we show that countries enter more unrelated products when they are at an intermediate level of economic development, and when they have higher levels of human capital. Finally, we ask whether countries entering more unrelated products grow faster than those entering only related products. The data shows that countries that enter more unrelated activities experience an increase in short-term economic growth of 0.5% per annum compared to those with similar levels of income, human capital, capital stock per worker, and economic complexity.

Suggested Citation

  • Flávio L. Pinheiro & Aamena Alshamsi & Dominik Hartmann & Ron Boschma & César Hidalgo, 2018. "Shooting Low or High: Do Countries Benefit from Entering Unrelated Activities?," Papers in Evolutionary Economic Geography (PEEG) 1807, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2018.
  • Handle: RePEc:egu:wpaper:1807
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    File URL: http://econ.geo.uu.nl/peeg/peeg1807.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    relatedness; product space; unrelated diversification; economic complexity; catching up; new export products; economic growth;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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